As a Cleveland first-time homebuyer, it is critical you know your home financing options. It is important you base your decisions on solid information and on your unique financial situation and budget. After you have finished reading this article, you will know all of the different types of mortgage options available to you so when you meet with your lender you will be able to speak intelligently. Together with your Realtor and your lender, you will be able to select the type of home loan that best fits your homebuying needs.
Many mortgage options are available to a first-time homebuyer. I’ve prepared the following information on the seven most common mortgage loans available for buying a home in the greater Cleveland area.
Deciding which mortgage is best for you will depend on your monthly income, any future expected income, your debt and any liabilities you may have. Below are the various types of mortgages available to you.
Fixed-rate mortgages are just what their name implies –the interest rate is fixed for the life of the loan. The term of the loan can vary from 10, 15, 20 or 30 years. Adjustable-rate mortgages (ARM) have rates that can go up and down based on the index the loan is linked to. An index is a guide mortgage lenders use to measure interest rate changes. Lenders use several indexes including the activity of one-year, three-year, and five-year Treasury securities or “T Bills”. Each ARM is linked to a specific index. Generally speaking, the initial interest rate is lower but increases each year. This type of loan is desirable for buyers expecting a promotion or big raise within a couple of years. It is important to note that ARMs do have a cap as to how high they can go.
The Federal Housing Administration (FHA) offers loans to qualified homebuyers with a preset spending limit. Your down payment is usually only 5% down as opposed to the typical 20% down payment required for Conventional loans. Often, mortgage insurance is required and adds to the monthly payment. This is to protect the FHA from losing too much on defaulted loans.
A Veterans Administration (VA) loan is available to all military veterans regardless of how long they have served in the military. It allows buyers to purchase a home with no money down and no mortgage insurance in case of default. The current borrowing limit for VA loan is $417,000 for one-unit properties.
These 30-year loans are often called 5/25s or 7/23s and have a fixed rate for either five or seven years then will be changed to a convertible or nonconvertible loan. The convertible loan maintains a fixed-rate after the first five or seven years. The nonconvertible loan changes to an ARM after the first five or seven years.
A balloon mortgage requires you pay either the principal and interest or the interest only until the loan period ends. At this time, the loan must be paid in full. This type of loan can be beneficial for buyers expecting a financial windfall such as an inheritance.
By making two half-monthly mortgage payments a month, homebuyers significantly reduce the term of loan thereby decreasing the interest you have to pay. The mortgagee (homeowner) makes two monthly payments (half of the payment paid twice) equaling 13 payments annually rather than the usual 12.
If you’re unsure which loan is right for you, I would be happy to recommend a professional lender who is qualified to give you the best advice for your particular situation: www.homeloanandgo.com.
As a Cleveland area first-time homebuyer, you depend on solid information to make well-informed decisions. As your first-time homebuyer specialist, I will help you through every step of the home financing process. Before you search for any homes, make sure you have the right Realtor working for you. As your Cleveland area first-time homebuyer’s specialist, your real estate financing needs are my first concern.
Not sure if you qualify to buy a home? Contact me today and we will meet to discuss your financing options.
Keith Ramach, Realtor | Direct: (301) 921-2698 | Cell: (301) 509-1550 |
Email: keith@MyFirstClevelandHome.com | RE/MAX PROS